Exclusive Sydney car club faces collapse as it posts $770,000 loss
Key Points
- Why it matters: The 120-year-old Royal Automobile Club of Australia is one of the nation’s oldest clubs
- But its auditors warn there is “material uncertainty” over its future.
- It comes after previous auditors warned the club may be trading while insolvent
- But president Stephen Hathway says he has “absolute” confidence the club will survive.
Sydney’s exclusive Royal Automobile Club of Australia is verging on collapse after auditors warned there was “material uncertainty” and “significant doubt” it could pay off debts.
The warning came as the club posted a $770,000 loss in financial year 2023, and its 1600 members – down from 1800 last year – prepare to vote on the board of directors, led by Helm Advisory liquidator Stephen Hathway.
Walker Wayland, the previous auditors, told the board in March they should seek “safe-harbour” provisions. Flavio Brancaleone
The accounts were signed off by Rothsay, which delivered the bleak assessment after the club’s previous auditors, Walker Wayland, resigned earlier this year after alerting the board to concerns the club may be trading while insolvent.
“Uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern,” said the report of Rothsay director Graham Webb.
“Therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business.”
Founded in 1903, RACA sits on valuable, heritage-listed real estate at 89 Macquarie Street, revalued from $4.8 million to $120 million as of June, financial filings show. It is no stranger to dysfunction – eight directors have resigned this year, and its ex-CEO is suing the club in the Federal Court.
The members-only club costs at least $2500 for those based in Sydney, and has reciprocal arrangements with the exclusive men-onlyAthenaeum Club in Melbourne and Canberra’s Commonwealth Club among others both in Australia and internationally.
Cash outflows blew out from $208,000 to $1.39 million over the year to June, yet a new $3 million loan from non-bank lender Guardian Financial to repay “pre-existing Westpac bank facilities and provide the company with ongoing working capital” ensured RACA had cash in the bank at the end of the year.
Walker Wayland told the board in March they should seek “safe-harbour” provisions, which protect directors from legal action when restructuring companies that are potentially trading while insolvent.
Directors steadfast
“As your statutory auditor, we have obligations to the Australian Securities and Investment Commission … to report any suspected or actual breaches of the corporations act, and this obligation includes potential insolvent trading,” Walker Wayland partner Wali Aziz emailed the board on March 14.
The email, obtained by The Australian Financial Review, told the board what they required to prevent insolvent trading. Mr Aziz requested more documents “to form my view as to whether the club is trading while insolvent”.
The Financial Review does not suggest the company was trading while insolvent, or that any other directors’ duties have been breached.
A source with knowledge of the discussions said Walker Wayland resigned in June, though the club publicly informed members in September.
Mr Hathway said Walker Wayland was rotated out after more than 15 years servicing the club, and that the auditor’s resignation was only a procedural matter.
“Most auditors should get themselves rotated every four to five years, and the new board and me as president decided it was time to put it out tender,” he said.
“Every auditor has to raise their concerns, but that there won’t be a creditor unpaid.”
He rejected any suggestion the club may have been trading while insolvent.
“I am a registered liquidator. I know the definition of insolvent trading,” Mr Hathway said. “You are entitled to borrow to meet your obligations, and someone was prepared to lend to us so we can meet the day-to-day obligations of the club.”
The directors argued the company could continue as a going concern based on its forecasts and the Guardian loan in the financial filings. Longer-term, the viability of the club relied on “increasing member numbers, especially younger members”.
Development works
They said the club would consider “the sale or development” of its heritage floor space among “other property considerations to provide material funding for restoration … and internal conservation works”.
“The club has a design concept for adding eight part floors of hotel rooms that is before the authorities for consideration,” the directors said.
“If successful, the proposal would provide the opportunity for additional development of the club building to financially benefit the club.”
Mr Hathway, who is standing for re-election at RACA’s annual meeting on November 30, after joining the board in 2021, said he was “absolutely” confident the club would survive.
“We are confident that we can in time master that debt and build a more viable club that has facilities and venues that more suit the contemporary members,” he told the Financial Review.
“Nobody is pretending that the balance sheet is not what it is,” he said. “But there won’t be a creditor unpaid. Think of the numbers – we have an asset worth $120 million and all we have to repay is $3 million.”
He explained the property was revalued 30-times higher because of the strength of the property market and sale values of equivalent buildings in the area.
“We are confident that we can in time master that debt and build a more viable club that has facilities and venues that more suit the contemporary members.”
Voting for the board elections opened this week, with the results to be finalised at the AGM.
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